Even though it sounds Draconian, there is a growing wave of business sages and government experts that are calling for the Feds to keep their bailout to themselves to allow for real change in Motown. I can certainly see their point.

One can hardly flip on the television in this country without being bombarded with opinions on the automotive crisis and the various observations flowing from the Congressional dog and pony show hearings with the respective CEOs of the Big Two-and-a-half Three. Some of the thoughts are driven by fear of drastic change — those are the folks in favor of quick government support in the form of loans or capital investment. Another group of voices condemns the collective management and labor groups for their alleged excesses and cowardice and proclaim that auto companies, like the dot com debacles eight or ten years before, should be left to fail so the jackals of the business world can pick the bones clean.

And then there are those that believe that bankruptcy is the way to save GM, Ford and Chrysler from themselves and their plodding ways. These folks aren’t just pundits looking for a way to get their name in the paper, either. They include:

- Jack Welch, the former Chairman and CEO of General Electric,
- Michael E. Levine, a distinguished executive and scholar that has served as Dean of the Yale School of Business and CEO or Chief of Operations for a few airlines in the United States,
- Douglas Baird, Professor of Law at the University of Chicago,
- Dr. Martin Feldstein of the Harvard School of Business, and
- Mitt Romney, former Governor of Massachusetts and CEO of Bain & Company.

(Well, Mitt might be doing this in part to get his name in the paper, but I’ll keep in mind that his father was Chairman of American Motors in the 1960′s.)

In my mind, Mr. Levine’s op ed piece in the Wall Street Journal is the most cogent argument of the bunch of bankruptcy advocates. He starts in by saying this:

After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of “change,” GM still has eight U.S. brands…GM has about 7,000 dealers…GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again…It has other contractual obligations such as health coverage for union retirees. All of these commitments drain its cash every month.

Right off the bat, Mr. Levine asserts that any loan aimed at more time for Big Three management just means more of the same maddening slow shuffle to oblivion. He goes on to say that GM has so many ties (dealers, retirees, labor, supplier/creditors, municipalities) that any bailout money would be gone before any real change could take shape:

Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.

Mr. Levine cites unhealthy labor and retiree costs that must be shed, the dealer networks that should be reduced by 70% or more, plants that should be shuttered despite the municipal bonds and loans, and suppliers that want their fat contracts to support their own bloated organizations as the reasons he advocates dramatic change through bankruptcy reorganization. He understands that if the government bailout goes through that these liabilities will not be affected in any urgent way and that the ultimate demise of GM, Ford and Chrysler would have only been delayed by a period of months.

On the other hand, he recognizes that the costs in the short term would be high. Very high.

Jack Welch and his current wife Suzy have written many of the same comments as Mr. Levine in their essay, but they add the novel twist of theorizing that General Motors and Chrysler, LLC should enter Chapter 11 bankruptcy together with the expressed purpose of reorganizing as one company to eliminate overhead and to eliminate competition. In their view, the emerging business would still own 25% of the North American market and would be poised to send huge shockwaves through an industry that is on “the beaten path of incrementalism”. This might be too risky and too cumbersome, both criticisms that Mr. Welch acknowledges will make the path difficult.

Finally, and perhaps most to the point, Dr. Feldstein opines:

Making U.S. automakers like GM viable to become competitive again “is going to require restructuring the wages and benefits they pay to auto workers,” he [Dr. Feldstein] told CNBC. “Whether that happens in bankruptcy or it’s done in another managed program, that has to happen.”

Staunchly, the CEOs of the Big Three deny that bankruptcy is even an option. Why? Mr. Douglas Baird, a law professor at the University of Chicago, offers this suggestion:

For Wagoner, any bankruptcy filing could cost him his job.

It would probably cost him is contractual golden parachute as well.

I’m not a business expert. I’m not even a car expert. However, I do know that corporate change comes at a pace that’s much too slow in virtually every case. After all, if change came fast enough, we wouldn’t see business after business in trouble in both good and bad economic times. Dramatic change must occur. I wish that everyone had the courage to make the sacrifices needed without bankruptcy. However, I don’t think that they do.

Again, there’s been a lot of drama while I’ve been sleeping. Here’s the best of it and a few questions about the people asking the questions.

Compromise Bill sorted

The good news when I woke up this morning is that for an all-too-brief moment, it looked like a compromise had been reached and a set of conditions agreed upon that could be presented for a vote.

CNBC is reporting that four U.S. senators have reached a bipartisan agreement on a bill to help the Big 3 automakers in Detroit. Those senators include Michigan Democrats Carl Levin and Debbie Stabenow, Ohio Republican George Voinovich and Missouri Republican Christopher Bond. Details of the bill are not yet available, but a news conference is scheduled for 2:30PM EST, at which time we should learn more.

Enter the dragons

Before they cold hold that news conference, a few of the Senators decided to hold a conference of their own and they shot the whole thing down in flames:

Wow, what an amazing piece of political theater that just went down. As we reported, four senators from auto producing state (two Democrats and two Republicans) led by Michigan Senator Carl Levin have reached an agreement on a compromise bailout bill for automakers. They were set to announce details of the compromise bill at 2:30PM, but before they could, a team of Congressional Democrats led by House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid walked into the room in which the press conference was to be held and announced that they didn’t support the compromise bill and that CEOs of the Big 3 would have to come back after the Thanksgiving holiday and present a plan on how any loans that might be given would be used.

Clueless?

The Detroit News blog following these Senate hearings pointed out an interesting factoid the other day:

Is it just me, or does Congress show a stunning ignorance of the federal government’s own securities regulations? Several lawmakers have asked questions of the three CEOs today about their future financial projections that, if answered, would constitute a violation of the Security and Exchange Commission’s rules. They then get quite indignant when the execs say they can’t answer those questions.

Now, the question is…… does their new requirement – the the CEO’s bring their detailed plans on how money will be used before a bill passes – does that requirement also constitute a violation of SEC rules as well.

And even if it doesn’t, what sort of competitive disadvantage are they placing the Detroit companies in if they insist on this? Do you think the guys at Toyota and Honda won’t be listening intently?

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I know, GM wouldn’t be having to mull this over if they had their house in order in the first place. And I know that when you ask for a loan of this size that you need to provide some accountability, but it seems to me that the Senators are acting like disgruntled board members.

Set general preconditions about executive pay or whatever. Have a closed hearing to discuss this corporate information. Do it smart.

Right now it looks like a bunch of yahoos grandstanding to get their heads on camera. Talk about fiddling while Rome burns!

Here’s the latest happenings from my feeds this morning:

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This is not the current cover of Time Magazine. It comes from 1992 and was scanned and sent in by Tedjs.

Thanks for the smile, Ted.

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The Aussie car market is now going belly up and in a stunning move, the Federal Chamber of Automotive Industries has unknowingly conceded that it’s moved way too late by saying that the industry needs goverment assistance THIS WEEK if it’s going to survive.

On the day that America’s giant car makers pleaded for a multibillion-dollar lifeline from Washington, the Rudd Government was told that the local industry was also in desperate need of aid.

The Federal Chamber of Automotive Industries warned of “empty dealerships and closed factories” unless the Government acted this week.

The warning came a day after Holden said it would shut down local car manufacturing for an extra 25 days in coming months due to falling sales, and as Volvo cut 130 jobs at its truck assembly plant in Brisbane.

Figures for new car sales in October were also down almost 11% on a year earlier, adding to signs that the economy could be following the rest of the developed world into recession.

The government here in Australia threw up some money for green vehicle initiatives a week or so ago. Why didn’t anyone say anything about this then?

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I addressed just one or two of the mythical beliefs people hold about GM in my 0.02c article about this crisis, published here yesterday.

The Detroit Free Press has a much more comprehensive piece on six of these myths. Though I don’t believe they’ve covered some of them fully and the explanations they give are roundly in Detroit’s favour, they do bring out some salient points that people either overlook or ignore when talking about minstream vehicle companies.

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Reuters has a clearer explanation of the SolarWorld bid to take Opel off GM’s hands:

* Solarworld said it could offer up to 250 million euros ($315.6 million) in cash and another 750 million euros in credit lines for Opel’s German plants.

* The four plants are located in the German towns of Ruesselsheim, Bochum, Kaiserslautern and Eisenach.

* Solarworld said the offer was conditional on the German government granting loan guarantees to Opel and the German carmaker being split off from parent GM.

* Solarworld also said it wanted GM to pay compensation of 40,000 euros per Opel worker, totalling about 1 billion euros.

* Solarworld said it planned to use the Opel plants to make a new generation of energy-efficient, low-emissions vehicles.

So……they’ll give the around a quarter of the price in cash and a credit line for the rest, then demand the full amount back in cash as compensation for taking on the workers.

Maybe I should offer Rene Hirsch $20 in cash for his Sonett #4 and a further $1,999,980 in promissory notes to be paid at a time of my choosing. Then I could demand $2,000,000 in compensation for taking on the burden of caring for all those old parts.

Rene? Call me.

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Of course, the most enduring mental image from today – and the one that might just kill off any public sympathy for the Detroit 3 – is the image of three corporate jets sitting on an airfield somewhere in Washington DC, waiting for their cargo of CEOs who will have just been begging for taxpayer money for their ailing companies.

Sheer boneheadedness.

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Following is a copy of GM CEO Rick Wagoner’s notes for addressing a Senate Committee looking into a bailout bridging loan for the domestic automakers in the US.

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Good afternoon, Mr. Chairman.

I’m Rick Wagoner, Chairman and Chief Executive Officer of General Motors. Thank you for the opportunity to speak today about the future of America’s domestic auto industry.

I’d like to acknowledge for the Committee the constituents that I represent:

- General Motors directly employs approximately 96,000 people in the United States. We have 6,500 dealers across the country, who employ another 340,000. Last year, we purchased more than $30 billion of goods and services from more than 2,000 suppliers in 46 states. Our pension program covers nearly 475,000 retirees and spouses, and our health benefits extend to about one million Americans. We have about one million registered stockholders. And 70 million of our vehicles are registered to U.S. citizens… 22 million of them purchased in the last 5 years.

* * * * * * *

As recent news coverage has made abundantly clear, many people have a picture of GM that has not kept pace with our progress. In fact, GM has made tremendous progress transforming our business in recent years. Since 2005, we’ve reduced our annual structural costs in North America by 23 percent, or $9 billion… and expect to reduce them by about 35 percent, or $14-$15 billion, by 2011.

Between 2003 and 2010, we’ll reduce our U.S. hourly labor costs from $18 billion to $6 billion. We negotiated a landmark labor agreement with the UAW last year that will enable us to virtually erase our competitive gap. And we’ve addressed pension and retiree health care costs in the U.S., on which we spent $103 billion over the last 15 years.

As a result of these and other actions, we are now matching – or beating – foreign automakers in terms of productivity, quality, and fuel economy. By 2010, we’ll match them on labor costs, as well.

On the product side, we’re building vehicles that consumers want to buy… like Cadillac CTS, Motor Trend magazine’s2008 Car of the Year… and Chevy Malibu, the 2008 North American Car of the Year.

We’ve also made huge progress developing advanced propulsion technologies. In 2009, GM will offer 20 models in the U.S. that get at least 30 miles per gallon highway – twice our nearest competitor – and nine hybrids. We have more than three million flex-fuel vehicles on the road in the U.S. We’ve established the world’s largest hydrogen fuel-cell test fleet here in the U.S.
And we’re running all-out to get the Chevy Volt extended range electric vehicle to market as soon as possible.

* * * * * * *

In short, we’ve moved aggressively in recent years to address competitive shortcomings and position GM for long-term success… and we were well on the road to turning our North American business around.

Last October, following the negotiation of a new labor agreement with the UAW, our stock price climbed to almost $43 per-share… based on analysts’ views that we had finally overcome the cost-competitiveness gap with foreign automakers.

Since then, our industry has been hit hard by the global financial markets crisis… and the recent plunge in vehicle sales threatens not only GM’s ongoing turnaround, but our very survival.

In response, we have moved quickly to keep our company on track. Since June, we’ve taken steps to:

- reduce our North American manufacturing capacity;
- further shift production to cars and crossovers;
- sell off parts of the company;
- suspend dividend payments;
- reduce headcount;
- eliminate raises, discretionary bonuses, and 401(k) matches for salaried employees;
- and eliminate health-care coverage for U.S. salaried retirees after age 65.

These and other actions are designed to improve GM’s liquidity by $20 billion by the end of 2009. They affect every employee, retiree, dealer, supplier, and investor in our company.

* * * * * * *

Mr. Chairman, I do not agree with those who say we are not doing enough to position GM for success.

What exposes us to failure now is not our product lineup, or our business plan, or our employees’ ability to work hard, or our long-term strategy. What exposes us to failure now is the global financial crisis, which has severely restricted credit availability, and reduced industry sales to the lowest per-capita level since World War II.

Our industry, which represents America’s real economy, needs a bridge to span the financial chasm that has opened before us. We’ll use this bridge to pay for essential operations… new vehicles and powertrains… parts from our suppliers… wages and benefits for our workers and retirees… and taxes for state and local governments that help deliver essential services to million of Americans.

In the process, we’ll continue to reinvent the automobile, and improve the nation’s energy security, through development of advanced technologies like those in the Chevy Volt.

* * * * * * *

And what would it mean if the domestic industry were allowed to fail?

The societal costs would be catastrophic: three million jobs lost within the first year, U.S. personal income reduced by $150 billion, and a government tax loss of more than $156 billion over three years… not to mention the broader blow to consumer and business confidence.

Such a level of economic devastation would far exceed the government support that our industry needs to weather the current crisis. That’s why this is about much more than just Detroit… it’s about saving the U.S. economy from a catastrophic collapse.

In short, helping the auto industry bridge the current financial crisis will not only prevent massive economic dislocation now… it will also produce enormous benefits for our country later.

We want to continue the vital role we’ve played for America for the past 100 years… but we can’t do it alone. You can help us through this crisis. In return, we will repay the taxpayer’s faith and support many times over, for many years to come.

Thank you, and I look forward to your questions.

There’s so much that’s been going on since I last wrote here that it’s hard to know where to start. Much of this is follow-up on previous themes we’ve explored here at TS.

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The biggest story of today is that the heads of the Detroit car companies are currently in front of what seems to be a reasonably hostile Senate hearing, arguing their case for a bailout.

The Detroit News blog is running some ongoing coverage that’s worth tuning into.

Automotive News are linking to live video of the hearing. I hope that link works.

In their prequel style summary, Automotive News predict a very, very uphill battle for the Detroit 3:

During a hearing of the Senate Banking Committee, most Republican members maintained a hard line against aid to the Detroit 3. Some Democrats on the committee called for more conditions on aid.

The committee is considering legislation that would enable General Motors, Ford Motor Co. and Chrysler LLC to tap into $700 billion in bailout funds for financial institutions. The George W. Bush administration and many Republican lawmakers opposed the measure.

In introductory remarks at the hearing, Banking Committee Chairman Christopher Dodd, D-Conn, said many of the domestic industry’s problems are self-inflicted. But he said the failure of one or all of the Detroit 3 would further harm the nation’s economy.

Dodd urged the Detroit 3 not to oppose federal regulatory efforts to improve fuel-efficiency standards and reduce emissions.

Sen. Richard Shelby of Alabama, the committee’s ranking Republican, said that the proposed $25 billion in low-interest loans might merely tide the carmakers over for a few months. After that, he warned, they could seek another $25 billion or more.

“Is this just life support?” Shelby asked.

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In other news, all this financial pressure has actually made GM’s bloggers come up with something useful.

Fastlane has an open letter to the New York Times’ occasional writer, Thomas L Freidman, who recently dumped a truckload of cow poo on them in an op-ed piece. This open letter summarises pretty well the reasons why I think GM deserves a shot at the moment.

It addresses some of the myths about GM. Whilst I don’t like GM’s facts and fiction website, I do think there’s a lot of misconceptions out there. I hear them in comments here, too.

My favourite one is “GM don’t build vehicles that people want”, which is an absolute crock. I don’t think they build enough of the types of vehicles that more people want, but the fact that their sales are still running around #2 in the world indicate that people are still buying them (i.e. they want them).

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CNN Money has some follow-up on the issue of Swedish assistance for their domestic automakers, which I covered yesterday:

STOCKHOLM -(Dow Jones)- The Swedish government is in discussions with the country’s automakers, Ford Motor Co. (F) unit Volvo Cars and General Motor Corp.’s (GM) Saab Automobile AB, about how it can help navigate the economic downturn.

Talks so far have revolved around boosting research and development aid and how to help employees who have lost their jobs, Volvo Cars spokeswoman Maria Bolin told Dow Jones Newswires.

The discussions, contrary to some Swedish media reports, have not involved a loan package similar to that under consideration in the U.S. to help General Motors Corp. (GM), Ford and Chrysler LLC.

“We’re not discussing any loans with the government,” she said.

Saab spokesman Eric Geers confirmed that his company is also talking with the government about potential support, but declined to be more specific.

Industry Ministry spokesman Hakan Lind said the government and the auto industry are having “an open discussion and are examining what, if anything, should be done.” He declined further comment.

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And there’s also expanding coverage on the possibility of GM Europe becoming its own entity if GMNA goes under:

Opel has also had a run of poor performances, losing market share steadily with cars considered poorly made and not in tune with consumer trends.

After implementing a programme of deep restructuring, the company has begun to turn things around and has become one of two main research centres run by GM worldwide.

“GM Europe is a good company with interesting brands, a nice range of products and a functioning distribution network,” IHS Global Insight analyst Christoph Stuermer told AFP.

Besides Opel, GM produces Saab and Vauxhall automobiles in Europe.

The international economic slump and financial crisis that has slammed GM now threatens to derail Opel’s recovery and as a result, there are growing calls for more independence, or even an outright separation from GM.

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There’s probably a whole lot more about this already known through the Swedish newspapers, but seeing as I don’t have the time nor the capacity to find or translate the stories, let’s kick things off with this snippet and let the Swedes reading this contribute what they know (if there’s anything to contribute, that is).

German publication, Welt Online, has a short story this morning that translates as follows:

Sweden’s Finance minister Anders Borg may have arranged some help for profit losing manufacturers Volvo and Saab. Borg said in Stockholm at the presentation of a new economic forecast, “targeted measures” could be used to stabilize the labor market as necessary. He didn’t give details. Saab are as one with Opel in Germany, who together are affiliated to a depressed GM in the US. Volvo’s parent, Ford, is also fighting with high losses.

In related news, Volvo’s parent company has just sold a portion of it’s ownership stake in Mazda, raising $540m in the process.

Ford Motor has raised $540 million after selling 20 percent of its 33.4 percent stake in Mazda.

The sale means that Ford will end 12 years of control of Mazda. The U.S. carmaker first took a stake in the Japanese carmaker in 1979…..

…..Ford said it would continue its partnership with Mazda despite reducing its holding to 13 percent from 33.4 percent. Mazda and more than 20 of its business partners have bought the Ford shares, which was forced by Ford’s need to raise money.

“This agreement allows Ford to raise capital that will help fund our product-led transformation, and at the same time, allows Ford and Mazda to continue our successful strategic relationship in the best interest of both companies,” said Ford CEO Alan Mulally in a statement.

Ford and Mazda will continue their joint ventures as well as the sharing of platforms and powertrains.

This really is one of the most turbulent times I’ve ever seen whilst even casually watching the car business.

And still, there’s no buyer for HUMMER.

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If any of you Swedes have any more news on help offered to Saab and Volvo from the Swedish government, please chip in via comments.

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Thanks WooDz!!