UAW Bailout, Automotive Bailout a bad idea that won’t work

Posted by on December 16, 2008 11:54 pm
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The Bailout for the banks was wrong. The bailout for the Automotive Industry was wrong. And suing the TARP (Bailout for the banks) to bailout the Automotive Industry is wrong not times two, but to the power of two (like the old commercial).

My hat is off to the Senate Republicans for doing their conservative best and not passing a lousy bailout bill. I posted a few days ago about killing the goose that lays the golden egg. The unions, and please don’t spare the managements lack of a back bone, have truly choked off the lifeblood of the American automotive industry. The unions stood strong against the Senate and they called the bluff. The Conservative Republicans stood strong and said no and the bill properly died.

Why is Paulson now finding a way to use $40 billion (wait, didn’t Detroit ask for $34 billion after their original request of $25 billion?) of the TARP money to bail out the UAW – and don’t try to make this about the Auto Industry, the veils come off and it is truly all about the UAW. I’m confused President Bush. I’m truly confused as to why you would send money that was not approved to bail out the UAW to them (through the guise of bailing out the Automotive Industry).

This is truly throwing good money after bad. If you don’t have a plan to become cost competitive with the foreign manufacturers building right here in the US, then you don’t have a plan. The better mouse trap has to be at a competitive price too. Our industry is not competitive with others building in our own country, with our own labor. This is akin to burning $40,000,000,000 on the steps of the congress.

Ford Motor Company may have the plan in place to survive. They had the courage to turn down the bailout. General Motors is still struggling to figure out how to become competitive. Let me offer some suggestions:

1) Eighty Percent of the profit of GM comes from twenty percent of its models. Consolidate the 20% into one Umbrella Company, jettison the rest. And be profitable. If you need to see best in class at doing this, look at Illinois Tool Works. They rescued more companies at the end of their life cycle than any other company in the world. Reduce your white collar workforce accordingly and your management team too. Pick the best of the best to stay on the bus, then figure out which seats they fit into.

2) Make the hard cuts. Eighty (80) percent of your cost comes from twenty (20) percent of your suppliers. Sit down with them and figure out a way to reduce costs with them. Don’t pull the old “give me 5% price decrease in a year, and another 5% in two years” but work with them to take the cost out.

3) Work with the Unions and keep only the workers on your payroll that you need, and not one other worker. To pay for people to stay home is burning cash. Don’t do it. If they won’t bargain in good faith, no problem; go through Chapter 11 restructure. But, don’t start this till you’ve done #1 and #2 above.

4) Now for the hard part, like the UAW wasn’t. Again, eighty percent of your sales come from twenty percent of the dealerships. Keep the twenty percent that do the job for you, and can the rest. Think of the inventory reduction you’ll be able to realize by eliminating 80% of your car lots. Now, don’t think of it as cars, think of it at thousands of dollars that are not tied up in car lots doing nothing for you. Release all that pent up cash into the R&D stream. Focus on ways to feed the car lots you do have more efficiently, faster, and with a time closer to what a customer may accept a special build.

5) Take a look at the R&D effort and take a page from the Japanese model. They have, for years, had to deal with the yen to dollar relationship, and they always have a plan for a high value yen, and a low value yen. Detroit, take a look at the same idea but with gas prices. Have a line up of cars that are ready to hit the assembly lines if gas prices are $4.00 a gallon (like our new energy czarina wants to do) and one for gas prices at $2.50 a gallon. Different cars for different environments. Don’t gamble, plan and prepare for both scenarios.

Chrysler. I’m sorry, I think it is truly too late for you, and I hate to see the remnants of the divestiture from Daimler-Chrysler go out, but you had a good run, and Daimler sucked your cash and spit you out and left you with rear wheel cars that are not as elegant and innovative as the old cab-forward designs. But, perhaps you too can do the impossible again and rise like a phoenix out of the ashes of this lousy bailout.

A bad bailout is a bad bailout, I’m still convinced that it will not work, but if the Automotive Industry takes that simple five step plan, they will improve their chances. The question is; will they?

I urge you to write your Senators, write your Congressman and tell them to block the Paulson’s effort to use TARP money. The UAW is not a bank. The UAW is not a toxic asset. The UAW is not a mortgage pushed by Freddie and Fannie.

Stand Up America, let congress know how you feel.

Respectfully Submitted

The Lee’s Summit Conservative